Division Materiality - Insurance (prudential standard) determination No. 9 of 2006 - Prudential Standard GPS 231 - Outsourcing - Materiality

A material business activity is one that has the potential, if disrupted, to have a significant impact on the insurer’s business operations or its ability to manage risks effectively, having regard to such factors as:

(a) the financial and operational impact and impact on reputation of a failure of the service provider to perform over a given period of time;

(b) the cost of the outsourcing arrangement as a share of total costs;

(c) the degree of difficulty, including the time taken, in finding an alternative service provider or bringing the business activity “in-house”;

(d) the ability of the insurer to meet regulatory requirements if there are problems with the service provider;

(e) potential losses to the insurer’s customers and other affected parties in the event of a service provider failure; and

(f) affiliation or other relationship between the insurer and the service provider.

For the purposes of this Prudential Standard the internal audit function must be treated as a material business activity.

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